Hard choices have to be made

The evidence has been clear for a long time now regarding the future of those twin financial train wrecks known as Social Security and Medicare.

We have known for decades that without significant reform both are on a path toward insolvency.

We learned this week, however, that both runaway trains took a shortcut at the last switching station. The train wrecks are approaching faster than we thought.

The trustees of Social Security and Medicare, led by Human Services Secretary Kathleen Sebelius, reported Monday that the federal retirement program will run out of money three years sooner than previously expected.

If those broad outlines aren't unnerving enough, meanwhile, the future of both programs only gets worse as one delves into the details.

Social Security, for example, is split into two funds. The big one, for retirees, is expected to keep up current payments until 2035, even though two years ago it started paying out more than it takes in.

The Social Security fund for disabled workers, however, is expected to run short three years sooner than previously calculated, in 2016. Taken together, the two funds will last until 2033.

The Social Security "trust funds" are held in U.S. Treasury bonds, the proceeds of which have been directed into other federal spending programs. That is to say, the payroll-tax revenue technically invested in the Treasury bills can be redeemed only by additional federal spending, either through new taxes or new debt. There is no real trust fund. There are only IOUs.

The details gets exponentially more bleak regarding Medicare.

Officially, the overseers of Medicare concluded there is no projected change in the financial demise of the retiree health-care program, estimated to hit in 2024. But Medicare's actuaries, who work from what many observers consider a more realistic set of data, have moved the insolvency date up a year to 2023.

The primary program of Medicare, the retiree hospital insurance program called Medicare Part A, has been spending in the red compared with payroll-tax revenue even longer than Social Security, since 2008. To make it solvent for its long-term future, the Medicare payroll tax would have to increase by at least 84 percent from the 2.9 percent at which it stands now.

It is that long-term outlook that really illustrates what a financial nightmare the pay-for-service Medicare system is about to become.

The program's trustees foresee Medicare accumulating debt over the long term (calculated at 75 years) of $26.9 trillion. The more realistic actuarial projection -- which does not expect the across-the-board Medicare payment cuts to doctors and hospitals enacted in 2010 to occur -- anticipates debt of $36.9 trillion in that period.

Either way, the debt is, simply, not sustainable. That kind of spending means payments to Medicare alone would surpass 10 percent of gross domestic product. Nearly half of all government spending, in other words, would be on Medicare.

As constituted, the programs are headed for disaster. It is inconceivable that they can be righted without making hard choices. Whether the leaders of either political party are up to making those hard choices remains an open question.